When preparing your budget as an investor, you may often think ‘how could I reduce the costs of owning the investment, by maximising the cash flow earnt from the property?’
Many investors often fail to consider the benefits of tax depreciation available to them and the additional cashflow generated from this through taxation savings.
Claim Property Depreciation
The Australia Taxation Office (ATO) allows investment owners to claim property depreciation; which is the gradual wear and tear of both the building structure and the assets within the property over time. Structural items are claimed using capital works deductions, and are claimed over the effective life of the property. However, the assets within the property are claimed based on their individual effective lives, set by the ATO.
Depreciation Schedule
A depreciation schedule is required to maximise depreciation deductions and to substantiate these deductions in a tax return. The ATO recognises that Quantity Surveyors have the necessary skills to estimate construction costs for depreciation purposes. The cost of preparing a tax depreciation schedule can vary, however it is important to remember that Quantity Surveyor fees are also 100% tax deductible.
By claiming investment property depreciation, investors are essentially reducing their taxable income and saving tax. The table below outlines the possible real deductions found for certain property types.
Depreciation Deduction Assessment |
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| New Unit | Old Unit | New 3BR House | Old 3BR House | |
| Purchase Price | $450,000 | $400,000 | $600,000 | $500,000 |
| Year 1 Depreciation | $12,800 | $6,900 | $11,200 | $6,000 |
| Year 1 – 5 Cumulative Depreciation | $55,040 | $28,980 | $48,160 | $25,200 |
| Average Annual Cash Return* | $4,073 | $2,145 | $3,564 | $1,865 |
*(First five years, calculated on a 37% tax rate.)
If you have any questions about eligibility to claim the above or how this may impact your personal tax position, please contact one of our team members at the office.
